1. Why should you not use IRR to choose between mutually exclusive projects?
2. In what ways is MIRR an improvement over IRR?
3. Given that IRR has some "issues," why is it used so frequently?
4. You company normally earns about 14% on projects, but just found a great new opportunity that has an estimated IRR of 36%. Given what you know about IRR, would you have any reason to question this IRR? Can you think of a better alternative? Explain.
5. Define and give an example of each of the following types of cash flows:
a. Sunk Cost
b. Opportunity Cost
c. Externality
6. What are the potential problems of a company having a large amount of money in cash and not distributing it to shareholders?
7. Your firm is growing rapidly and pays no dividends. You just sold off a subsidiary in order to focus more on your core business and, as a result, have a large amount of cash on hand. Should you start paying dividends or conduct a stock repurchase? Explain.
8. Why can some firms handle more financial risk than others without stockholders getting too nervous?
9. What is the difference between business risk and financial risk?
10. Carefully discuss the advantages and disadvantages of using debt as part of your capital structure.